The CFE Designation in Perspective

By Robert Braun, Shawn Mauldin, and Mandy Alfano Fischer

In Brief

The Benefits Outweigh the Costs

As CPAs prepare for a future in which they offer services outside of the traditional audit and tax areas, fraud specialization has an intrinsic appeal. Where once the CPA insisted, “It’s not our job to detect fraud,” the profession is now slowly embracing the responsibility. Standards setters have spotlighted the issue with SAS 82, “The Auditor’s Consideration of Fraud in a Financial Statement Audit,” which requires auditors to specifically address the risk of fraud on a financial statement audit and respond appropriately.

Some CPAs acquire a specialty designation as a means of signaling their expertise in the area of fraud. The leading specialty designation in this area is the certified fraud examiner (CFE) designation offered by the Association of Certified Fraud Examiners. The authors surveyed CPAs that hold the CFE designation to determine whether its perceived value is worth the investment.

Increased awareness of issues related to fraud has prompted many professionals to increase their knowledge in this growing practice area. Indeed, SAS 82, “The Auditor’s Consideration of Fraud in a Financial Statement Audit,” requires that auditors specifically assess the risk of material misstatement of the financial statements due to fraud. One way for CPAs to gain the more specialized knowledge required to practice in the fraud field—and indicate this expertise to the public—is through specialty designations.

Specialty Designations

As the profession looks to the future, it sees growing opportunities in fields outside of the traditional audit and tax areas; this vision is manifested through the increasing number of specialty designations offered by the AICPA. At present, it offers the personal financial specialist (PFS), certified information technology professional (CITP), and accredited in business valuator (ABV) designations. Recently, the AICPA has also drawn considerable attention for its proposed global credential, which has been referred to as XYZ and Cognitor.

Countless other designations are available from various organizations. Some of the more popular examples include the certified financial planner (CFP), chartered financial consultant (ChFC), certified management accountant (CMA), certified internal auditor (CIA), certified information systems auditor (CISA), and certified fraud examiner (CFE).

Research has identified several benefits and costs of specialty designations. Benefits include alternate revenue sources, increased competence, and higher fees. The costs associated with obtaining and maintaining a specialty designation would likely have to be recouped in the form of higher billing rates. Moreover, the proliferation of unfamiliar specialty designations has been found to confuse potential users of such services and muddy the perceived value of the services. Additionally, as CPAs move into new specialized areas, they face greater competition from non-CPAs with competing designations.

The CFE Designation

The leading specialty designation in the area of fraud is the certified fraud examiner (CFE) designation offered by the Association of Certified Fraud Examiners (the Association). The first CFE designation was awarded in December 1988. Since that time, 24,000 designations have been awarded and 13,000 CFEs are currently members in good standing. In addition, approximately 10,000 individuals are considered “associates” that have met the requirements to take the exam but have not completed it or other certification requirements. Exhibit 1 details the Association’s requirements to reach the associate level, obtain certification, and maintain certification. Individuals possessing the CFE designation are expected to be experts at gathering evidence, taking statements, writing reports, testifying to findings, resolving allegations of fraud from inception to disposition, and assisting in the prevention and detection of fraud.

CPAs considering specialization in the area of fraud through the CFE designation might want to learn from those that have previously traveled the path. For example, they might ask whether the benefits of obtaining the designation outweigh the costs. They might want to know whether the work performed as a CFE is personally satisfying. Perhaps they would benefit from knowing whether the combination of CPA and CFE designations helps a practitioner compete for audit or fraud-related services. Additionally, perhaps the AICPA could learn from these and other issues as it addresses strategic initiatives for its future.

The Survey

The authors mailed a survey to 400 CPA/CFEs selected at random by the Association from their database (which contains a total population of 2,146 CPA/CFEs). The survey contained 25 statements designed to elicit respondents’ perception of the CFE designation and the combination of the CFE and CPA. A five-point Likert scale was provided for respondents to indicate the extent to which they agreed or disagreed with each statement; each question also contained a “not applicable (n/a)” option.

Demographics. Of the 400 surveys that were mailed, 201 were returned completed. Interestingly, it appears that most of those choosing to pursue the certification did so after their careers were established, as evidenced by an average age of 49, and had held the CFE designation for an average of 5.5 years. Respondents had already spent a considerable amount of time in their practice dealing with fraud—an average of over 17% of their hours—prior to obtaining certification. The CFE certification allowed them to increase their fraud-related hours by one-third. Although several respondents chose not to report their annual income, the average income among those reporting was greater than $100,000. Finally, respondents indicated that it took an average of 1.4 years for the benefits of obtaining the CFE designation to outweigh its costs.

Analysis

The questionnaire statements are presented in Exhibit 2 in descending order of mean response (a rating of 2 indicating “strongly agree” and –2 indicating “strongly disagree”). Clearly, the responses indicate overall satisfaction with the decision to obtain the CFE designation.

The respondents most strongly agreed that “the CFE designation increases the likelihood of user acceptance of formal recommendations regarding fraud investigations” (mean = 1.299). This was much higher than the level of agreement that “the CFE designation increases the likelihood of user acceptance of formal recommendations regarding preventative internal controls” (mean = 0.979). This discrepancy is consistent with the traditional audit situation, wherein clients generally accept recommended changes to the financial statements but repeatedly ignore the recommended internal control implementation recommendations that could prevent future misstatements.

It is also interesting to note that although CPA/CFEs agree that the CFE designation “contributes to an enhanced professional image” (mean = 1.290) and “signifies a higher level of competence” (mean = 1.175), their relatively low level of agreement that “the users of my services are knowledgeable about the designation” (mean = 0.097) suggests that users of CFE services place a certain degree of faith in the designation itself. Several of the written comments further support the suggestion that, as the CFE designation receives wider acceptance, lawyers and other users look for it as a sign of expertise and respond favorably to it—without really knowing much about the designation itself.

Respondents strongly agreed that “the combination of the CFE and CPA designations has helped me compete more effectively for fraud-related services” (mean = 1.196). Because auditing and fraud investigations both involve obtaining and evaluating evidence in order to determine the correspondence between assertions and preestablished criteria regarding these assertions, the CPA/CFE may have an inherent advantage in executing fraud-related services. Furthermore, the CPA’s knowledge of taxation and other regulatory environments may provide advantages over competing professionals. Interestingly, however, responses were much more ambivalent regarding the contribution of the two designations when competing for audit-related services. This could suggest that those contracting audit services do not necessarily look for effective fraud detection in engaging an auditor.

The statement, “the benefits of the CFE designation outweigh the costs” (mean = 1.185) was one with which respondents tended to agree. Given this result and the demographic data that it took less than one-and-one-half years to recover the costs of certification and that income was more than $100,000, it would stand to reason that the work associated with the CFE designation is fairly lucrative. Surprisingly, however, respondents were relatively close to neutral in their responses to the statements “the CFE designation has increased my gross billings” (mean = 0.370) and “the CFE designation has increased my hourly billing rates” (mean = 0.261). Overall, mean responses to statements regarding personal accomplishment and personal satisfaction were relatively high when compared to statements regarding billing and fees.

Discussion

As CPAs prepare for the future, the AICPA appears committed to providing the tools for continuous improvement in the area of fraud detection in auditing, as evidenced by its evaluation efforts subsequent to the issuance of SAS No. 82. Its recent XYZ, or Cognitor, designation project indicates that the AICPA is open to drastic measures in order to ensure that CPAs have access to the most up-to-date and functional credentialing possible. These and other recent developments within the profession only serve to strengthen the argument for effective education and training. The CFE designation may be one source of effective education, training, and credentialling in the area of fraud.